Apollo Global Management’s chief economist, Torsten Slok, warns of a potential “new inflation mountain” for the U.S. economy, drawing parallels to the inflationary period of the 1970s. The warning highlights risks from new tariffs, a weakening U.S. dollar, and ongoing internal debate within the Federal Reserve regarding monetary policy.

Market Overview

U.S. equities recently closed higher, with the Nasdaq Composite reaching a new high, and the S&P 500 and Dow Jones Industrial Average also posting gains. This market movement largely reflects investor anticipation of key inflation data and expectations for potential interest rate cuts by the Federal Reserve, especially following a weaker-than-expected August jobs report.

The Event in Detail: Apollo's Inflation Warning

Amidst this backdrop of rate-cut optimism, Apollo Global Management has issued a significant cautionary note regarding the U.S. inflation trajectory. Torsten Slok, chief economist at Apollo Global Management, has warned of a potential "new inflation mountain" for the U.S. economy, drawing historical parallels to the inflationary patterns observed in the 1970s.

Slok identifies several critical factors contributing to this potential resurgence of inflationary pressure. These include the implementation of new tariffs, a persistent weakening of the U.S. dollar, and increasing friction within the Federal Open Market Committee (FOMC) as it grapples with balancing rising inflation against slowing employment growth. The current path of U.S. core CPI, as highlighted by Slok, closely resembles the inflation wave of 1973–74, suggesting a potential for another inflationary peak to emerge.

Recent economic indicators show a mixed picture. While the broader Consumer Price Index (CPI) registered flatter than expected at 2.7%, the Producer Price Index (PPI) was higher than anticipated, with wholesale prices rising 3.3%. Core inflation, which excludes volatile food and energy prices, hit 3.1% in July 2025. The Organisation for Economic Co-operation and Development (OECD) further forecasts U.S. annual headline inflation to spike to 3.9% by the end of 2025, a notable increase from the 2.3% CPI recorded in April 2025 before the full impact of recent tariffs was realized.

Analysis of Market Reaction and Federal Reserve Dynamics

The market's current posture, which largely anticipates Federal Reserve rate cuts – evidenced by a 90% probability of a 25-basis-point rate cut in September – stands in contrast to Apollo's inflation warning. The "bad news is good news" dynamic, where soft labor data (August 2025 nonfarm payrolls added just 22,000 jobs, and unemployment rose to 4.3%) reinforces rate cut expectations, underscores the crucial role of upcoming inflation numbers.

"The Fed faces a classic Goldilocks dilemma: too tight, and the economy risks a slowdown; too loose, and inflationary pressures could reignite," noted one analyst, highlighting the precarious balance the central bank must maintain.

Indeed, the Federal Reserve faces a complex challenge: easing policy could risk reigniting inflation, while tightening could further destabilize a fragile labor market. Internal debates within the central bank reflect this duality, with some officials emphasizing the need for proactive easing and others cautioning against exacerbating inflation.

Broader Context and Implications

Slok's warning and the OECD's projections collectively paint a picture of a potential "stagflation-lite" scenario, characterized by slowing economic growth coupled with persistently high inflation. This environment could lead to reduced consumer purchasing power, increased business costs, and significant instability across financial markets. Historically, the 1970s era, marked by double-digit inflation, compelled the Federal Reserve to implement steep rate hikes, leading to recessions and market turmoil.

Should inflation prove more persistent than current market expectations, the implications for various asset classes could be significant. Sustained higher interest rates could impact corporate borrowing costs and economic growth. Bonds, particularly longer-dated issues, would likely face an erosion of real value due to persistent inflation. The U.S. Dollar could experience further weakness, reflecting concerns about the American economic trajectory. Global stocks are vulnerable to both slowing corporate earnings and rising interest rates.

Looking Ahead

Investors will be keenly focused on the next set of inflation numbers. Wholesale prices are due on Wednesday, followed by consumer price numbers (CPI) on Thursday. These reports will serve as critical tests for the market's current risk-on sentiment and will heavily influence the Federal Reserve's upcoming policy committee meeting. The ongoing debate within the central bank regarding inflation versus employment will significantly impact investor sentiment and market direction in the coming weeks and months.